ASIA
China
CHINA'S
BELT
AND
ROAD TO
NOWHERE?
GRI Senior Editor Nicholas Trickett argues that the Belt and Road Initiative (BRI) is laden with risks as
projects face headwinds or fail to deliver promised growth. Here are the top 5 takeaways from the
forthcoming GRI report on the topic, co-authored by Qi Lin, Joanna Eva and James Tunningley.
1
MULTIMODAL HARD CEILING
The growth of China-Europe rail transit has sparked intense
interest as new routes have created new openings for trade
set to compete with slower shipping routes. China is
predicting 15% annual growth in container volumes
exported by rail to Europe every year for the next 10 years.
But there is a hard ceiling approaching on China-Europe rail
transit via Russia due to budgetary and infrastructural
strain in Russia, and a refusal to allow Chinese firms or other
concessionaires to negotiate terms for projects. Barring
significant network upgrades, which are not likely in the near
term, bottlenecks will hinder growth.
The Trans-Caspian route seems to set to compensate. In reality, the volume of trade it can handle will
always be constrained. Large container ships can’t access the Caspian and it makes little sense to
build them there. This limits the economies of scale that can be achieved and means that trade will
largely be driven by the countries along the route based on the sectors of their economies showing
growth. But the BTK railway has made it China’s preferred option for transshipment to Europe. China
Harbor Engineering Company (CHEC) has also expressed interest in investing into the Bulgarian ports
of Varna and Burgas, but political obstacles have stalled these investments so far.
SUSPICION IN SOUTH ASIA
2
In 2015, China and Pakistan launched the China-Pakistan Economic Corridor (CPEC), signing 49
agreements to finance a variety of projects with a total expected value of $46 billion, including upgrades
to Pakistan’s Gwadar Port, oil and gas pipelines, road and railway infrastructure, and a series of energy
projects.
Besides Pakistan, Sri Lanka has been the leading beneficiary of Chinese infrastructure investment in
South Asia, with nearly $15 billion worth of projects between 2009 and 2014. China has also financed the
modernization of Chittagong Port, which handles around 92% of Bangladesh’s trade.
The trajectory of CPEC and Chinese investments in other South Asian countries has not been without
hiccups and roadblocks. There are many critics of Chinese involvement, reflecting a rising trend of internal
disagreements among China and its BRI partners. The high interest rates, strict commercial conditions
and lack of transparency are some of the biggest drawbacks of Chinese financing. Typical conditions
attached to Chinese loans include Chinese companies to be project contractors and at least 50% of
material, equipment, technology or services to be sourced from China. Loans extended by the Chinese
government-owned Chinese Exim Bank are mainly to purchase Chinese products and services and to use
Chinese labor and raw material.
In Pakistan, BRI and CPEC’s feasibility face growing criticism. The CPEC projects have remained
completely under the control of Chinese companies and banks and the project bidding, contracting, and
financing processes lack transparency. China’s alleged predatory behavior has created suspicion in other
countries in the region.
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